Jim Cramer: Taiwan Semi’s bullish earnings brings renewed optimism to broader sector

CNBC’s Jim Cramer on Tuesday reviewed the market reaction to Taiwan Semiconductor Manufacturing Company’s earnings report last week, saying the sector — especially capital equipment companies — got a boost from chip maker’s high figures and strong outlook.

“With its bullish report last Thursday, Taiwan Semi was able to remind investors how powerful this theme is,” he said. “Essentially resetting the entire narrative for everyone operating in the high-end semiconductor world, including the semiconductor capital equipment companies that stood out as some of the biggest beneficiaries.”

TSMC is the world’s largest contracted chip manufacturer, producing advanced processors for high-profile companies with deep pockets, like Nvidia and Apple. The quarter beat expectations, with its profit rising 57% from a year earlier to a record high, CNBC reported. TSMC said its high-performance computing division, which includes artificial intelligence, accounted for much of its sales. The company also indicated it would expand manufacturing capabilities and increased its capital expenditures budget over the next year, vowing to spend much of it on “advanced process technologies.”

Cramer explained that “advanced process technologies” means equipment used for GPUs and other accelerators, or products made by Nvidia and competitors. To Cramer, TSMC’s intention to increase spending on equipment lifted stocks of its suppliers, including Applied Materials, Lam Research and KLA.

But he said this rally is due to more than just TSMC’s numbers. Instead, the breakout in the group reflects investors’ renewed faith in the opportunity that lies ahead for these companies, he suggested. Some on Wall Street, he continued, now feel that the end of former President Joe Biden‘s term means restrictions on some advanced semiconductor technologies may be coming to an end.

“Frankly, I don’t think the opportunity for these semiconductor capital equipment companies was ever really that diminished, even when their stocks were getting clobbered last year,” Cramer said. “There was just a perception problem, and it’s always hard to move the crowd when a group’s out favor.”

TSMC did not immediately respond to request for comment.

Sign up now for the CNBC Investing Club to follow Jim Cramer’s every move in the market.

Disclaimer The CNBC Investing Club Charitable Trust holds shares of Apple and Nvidia.